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Sunday, 21 April 2013

NBN: Coalition's Voo Doo Economics

How to Value the NBN and its Benefits?The Coalition is very gung-ho on the need for "Cost Benefit Analyses" but has never said just what it will count as a Benefit... It appears they are very happy to transfer costs onto the public and ignore real gains in the economy outside their focus.Previously I've suggested the 70% increase in the value of Telstra, already around $25 billion, already justifies the Common-wealth investment. There are many other businesses who's value the NBN will increase: just the task the Productivity Commission is there to do.

There is also a hidden economic cost is the loss of value to affected assets.

We aren't just getting a two-tier Digital Access Network, the Digital Have's and Have Not's, we are getting at least 6M residences that will be worth less.

The amount is at least $3,000, the lowest amount of an upgrade to Real Fibre that Turnbull has admitted to. At $18 billion, spread over the 2nd-class Digital Citizens, it wipes out the most optimistic savings of the Coalition NBN Plan. They transfer losses to people who can't avoid them, an inconsiderat, cynical political act.

There is also the ghettoisation effect: when there is a sharp delineation between areas of special benefit, be it a selective school, low-risk insurance, a specific good/bad council or "Got Fibre?", then literally one side of the street will be worth considerably more than the other.

This small initial difference gets amplified over time due to the limited nature of the resource and perceived extra "utility". Secondary effects come into play where one side of the street attracts a substantial premium and the other induces a large discount, bringing less investment and less wealthy residents and tenants who invest less in the "wrong side of the tracks".

Whilst both sides of the street may increase in value, they are two very different markets. Long-term data tells us there's an iron-law: more expensive real-estate areas increase in value faster. Over time, "the rich get richer" and their houses increase in value a lot more.

You only have to look at the suburb of Redfern to see how that plays out over decades.

In 1972 I drove to Uni most days via the Redfern short-cut, through what was to become "The Block". Within a decade it was a No Go area for most people, another decade later it was the subject of a major riot.

All properties, shops and businesses within 1-2 km of The Block lost considerable value over time.It's an effect that feeds on itself: people find the area difficult, won't invest in upgrading their properties and sell at a discount to those who can't afford to go elsewhere. This locks into a death-spiral...

So, there's another piece of the puzzle which is the Coalition NBN Policy: they really don't care about the economic damage they inflict on communities, as long as they get elected now.